Bandhan Bank IPO is priced in a band of Rs 370-375.

New Delhi: Bandhan Bank's Rs 4,473 crore initial public offer (IPO), which kicked off on Thursday saw a subscription of 41 per cent on the first day. As of 4:45 pm, bids for 3.43 crore shares were received as against 8.34 crore shares on offer. Bandhan Bank's IPO is the biggest IPO in this year so far. Through this IPO, the bank plans to raise fresh capital of Rs 3,662 crore to augment its tier-1 capital base.

Priced in a band of Rs 370-375, the IPO will be open through March 19 (Monday). Investors can apply for the IPO in lot sizes of 40 or in multiples thereof. Retail investors have the option to apply for the issue at cut-off price. The maximum limit for retail investors being Rs 2 lakh, one can apply for maximum 13 lots.

Bandhan Bank began its banking operations in August 2015 after getting banking license from RBI. Prior to that, it was working as a microfinance lender under the name of Bandhan Financial Services Ltd (BFSL). The private sector lender primarily focuses on serving the underbanked and underpenetrated market in the East and North East India.

Microfinance contributing a major chunk of its total assets (88.3 per cent in the first nine months of FY18), Bandhan Bank enjoys a healthy NIM (net interest margin) of 10.7 per cent (in the first nine months of FY18) and also gets priority sector lending benefits. As of December 31, 2017, Bandhan Bank's total advances were at Rs 22,931 crore, up 41.3 per cent year-on-year.

For the first three months of the current financial year, Bandhan Bank's Return on Equity and Return on Assets were healthy at 26.8 per cent and 4.2 per cent respectively. Its higher return ratios were supported by a low cost to income and higher net interest margin.

Despite, focusing on the micro-lending space, Bandhan Bank has a lower gross non-performing asset (GNPA) ratio of 1.67 per cent (As of December 31, 2017). Meanwhile, its capital adequacy ratio was also strong at 24.85 per cent and post the IPO it will increase further.

In FY17, Bandhan Bank had reported 304 per cent jump in its net profit at Rs 1,112 crore on net interest income (NII) of Rs 2,403 crore, which grew by 158 per cent annually. In the first nine months of FY18, the bank reported a net profit of Rs 958 crore on NII of Rs 2,169 crore resulting in earnings per share of Rs 8.

At the upper end of the IPO price band, Rs 375, Bandhan Bank shares are valued at 8.3 times its 9MFY18 book value of Rs 45 and 5 times its post-IPO book value, says Angel Broking. On a PE basis, Bandhan Bank shares are valued at 34.4 times its estimated FY18 earnings per shares, says ICICI Securities.

Despite this high valuation, ICICI Securities and Angel Broking have recommended 'Subscribe" on the issue considering its healthy return ratio, balance sheet strength, growth potential and experienced and focused management.

Despite many positives, investing in Bandhan Bank involves a lot of risk. Here are they:

i) Concentration risk as substantial operations in eastern India
ii) Major portion of interest from advances are due within a year
iii) Microcredit lending has its own unique risks
iv) Continuity of management team and skilled personnel